Israel IT M&A Activity Steadily Rising

January 20, 2012

Israel is increasingly becoming a hot bed of IT M&A activity. Already this year, Apple officially announced it made its first acquisition in the country – flash memory developer Anobit. Acquisitions of Israeli IT companies have increased substantially every year since 2009, with 2011 boasting 23 transactions valued at over $930 million, according to Signal Hill data (not including semiconductor transactions).

The largest acquisitions of Israel-based companies in 2011 included Intel’s acquisition of Telmap for $325 million and 9.8x revenue; Citi Venture Capital’s $341 million acquisition of Ness Technologies; and VMware’s $100 million acquisition of Shavlik Technologies. These transactions are spread across the gamut of IT sectors as well – which means the country provides an opportunity for nearly every company looking to expand.

IT M&A Transactions with Israel-based Targets

israel IT M&A deals

M&A in Israeli IT dates back to the late 1990’s, when AOL paid $407 million to acquire instant messaging computer program ICQ (which was later acquired by DST in 2010 for $187.5 million). AOL came back to the country nearly 10 years later in 2007 to acquire Google AdWords competitor Quigo for $300 million – which at the time was expected to open the door for acquisitions in the country. Since then, M&A in the IT sector has taken off.

Apple’s latest purchase is not only a big deal because it is the company’s first foray into the country – but it highlights venture firm Pitango, which backed Anobit. Pitango is actually one of the few Israeli private equity firms to spread to U.S. – it has an established Silicon Valley office and regularly invests in U.S. companies. Signal Hill has been active with Israel-based companies as well: last year, Signal Hill security client iJet was acquired by 3iMind, which has a significant presence in Israel, while earlier this year, we announced a strategic investment in risk management solutions provider EXZAC by Israel-based Matrix.

Israel, with a population of 7.7 million, has about 60 companies traded on the NASDAQ, the most of any nation outside North America after China, according to Bloomberg. Israel is also home to the largest number of startups per capita in the world. Many big U.S. private equity and venture firms have set up shop in Israel, including Apax Partners, Landmark Ventures and Bessemer Venture, while large IT firms such as Intel, HP and Microsoft all have established operations in the country as well. The Israeli economy is relatively strong with A+ credit rating, which was upgraded in September, making investments in the area an easy choice. The Israeli tech community is also building ties to Europe and India more, not just the U.S. which means robust M&A activity will no doubt continue well over the next several years.

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Deal Focus: Apple Acquires Anobit for $390 million

January 20, 2012

Apple confirmed this week that it acquired flash-memory and storage provider Anobit for a rumored $390 million. Israeli-based Anobit uses proprietary signal-processing algorithms to improve the performance of flash-memory chips. In addition to flash memory, the company also sells enterprise storage solutions. The company had raised $76 million from investors, including Battery Ventures and Pitango Venture Capital.

The acquisition, Apple’s first in Israel, is a prime example of the company vertically integrating. Apple now owns a supplier of a key component for its top-selling devices, as Anobit’s flash memory technology is used in iPhones and iPads. Apple is the largest buyer of flash memory in the world and Anobit will now provide in-house chip procurement for the company, significantly reducing costs going forward. It also throws a wrench into the procurement process of one of Apple’s fastest growing competitors in the smartphone market – Samsung. Anobit has been a main supplier to Samsung and as a result of the acquisition may stop supplying chips to the company, which would strengthen Apple’s position in the smartphone market.

The rumored acquisition price of Anobit makes it Apple’s second largest acquisition to date – behind only its 1996 $404 million acquisition of NeXT, a computer company that developed and manufactured a series of computer workstations intended for the higher education and business markets. More recently, Apple paid big for its acquisition of PA Semi in 2008 ($278 million) and Quattro Wireless in 2010 ($275 million). Anobit is also only Apple’s third hardware acquisition in its history (P.A. Semi in 2008 and Intrinsity in 2010 for $278 million and $121 million, respectively).

Apple’s acquisition of Anobit is not a big surprise to industry analysts, who noted that flash controller acquisitions have been a trend recently. Last year, solid-state-drive-maker OCZ Technology Group agreed to acquire privately-held Indilinx, a maker of popular NAND flash controllers for $32 million, while fabless semiconductor maker LSI Corp. announced it would acquire flash controller maker SandForce. Apple isn’t necessarily one to follow trends, however. With Apple’s new CEO Tim Cook serious about not hoarding cash, and with $8 billion already on the books, we may start to see a number of bigger, trend-setting acquisitions by the company over the next year.

– Jane Santini, Associate

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Recent Trends in Enterprise Mobility

November 28, 2011

The enterprise mobility sector is rapidly growing as the demand for preferred personal devices such as tablets and smartphones, specifically Apple and Android platforms, continues to penetrate the enterprise with strong momentum. Moreover, Apple recently stated that the portion of Fortune 500 companies with a combination of testing or deploying of iPads and iPhones is 92% and 93%, respectively. Specific examples of enterprise use cases from a recent New York Times article include: airlines replacing printed flight manuals, navigation charts and other material that pilots are required to bring on board with iPads; and Standard Chartered, a financial services company, is supplying approximately 11,000 iPhones to employees in an effort to move them away from BlackBerrys, which have limited ability to create apps specific for their changing operations. The charts below show significant worldwide commercial tablet shipment growth, as well as increased tablet deployment in the enterprise.

“Consumerization” is driving the IT enterprise adoption of personal devices. There are a number of factors driving this movement, but the most important are employee demand, preference and “anytime, anywhere” access. However, accelerated adoption of these devices into the enterprise is leading to challenges and changes to find solutions that will enable full functionality, security, management and cost savings. As the volume of enterprise file-based content grows exponentially, businesses will continue to aggressively pursue initiatives that enable them to overcome challenges of integrating heterogeneous platforms and devices within existing infrastructure.

Industry leaders, such as VMware and Citrix, as well as a few smaller companies with expertise in the sector, recognize this tremendous opportunity, and are focused on developing enterprise secure solutions. Moreover, these mobile devices enable ideal synergies with SaaS and Cloud services. As such, adoption of enterprise mobility trends is anticipated to continue to drive an already active deal sector.

Overall, transactions within the enterprise mobility sector continue to be executed at a significant rate. Recent transactions of significance within this space include: Citrix’s acquisitions of both ShareFile (valued at 5.8x revenue) and App-DNA (valued at 5.9x revenue). Since the beginning of 2011, The 451 Group reported 342 deals completed in the Enterprise Mobility Sector, with 44 of those deals being done since Q4 (with a median EV / Revenue multiple of 4.0x).

-Frank Cordek, Associate

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CyberSource Deal Provides Clues To e-Payment Competition Fears

April 29, 2010

Visa made a splash in the tech circle last week when it announced it was acquiring e-payment, risk management and payment security solutions provider CyberSource for $2 billion. The credit card giant didn’t bat an eye at paying nearly 7x trailing revenue and over a 33% premium ($26 per share) on CyberSource’s previous day stock price. We have written quite a bit about electronic and mobile payments and there is no doubt the sector is extremely hot right now.

There are a number of reasons why Visa has decided to enter the e-payment realm with its acquisition of CyberSource. These reasons also serve as clues to where the future of payment technology is heading.

  1. The acquisition will allow Visa to gain a foothold in the increasingly competitive electronic and mobile payments market. As the payment market continues to expand almost daily, Visa is putting itself in prime position to utilize its already-established brand reputation. There are a huge number of electronic and mobile payment services popping up, many of them start-ups, that do not have the brand trustworthiness and recognition that Visa has built over the years. Probably the largest competitor in the market currently, eBay’s PayPal significantly expanded its global presence in 2009, processing more than $20 billion in transactions in Q4, and continues to grow through supporting a variety of currencies and offering developers use of its API. On the other end, start-ups — specifically mobile startups — are continuing to rake in venture capital investments, such as Matrix Partner’s recent $15 million investment in Zong, and Boku’s $25 million round led by DAG Ventures in January, and are proving to be another source of competition.
  2. CyberSource’s risk management and payment security services will boost Visa’s ability to detect fraud and points of compromise where card users’ information could potentially be stolen. Visa absolutely has a focus on security with this acquisition, specifically with CyberSource’s secure payment data hosting solutions, a growing need for merchants. The acquisition provides both companies with the resources to help merchants increase revenue through global growth while minimizing monetary loss from fraud. Customer information security is extremely important, especially when it comes to credit card and banking information. Although in a somewhat different vein, Blippy, a site for socially sharing credit card transactions, accidentally allowed users’ credit card information to slip into Google search results, which resulted in huge media backlash and a major overhaul of the company’s security practices. This shows the challenges that startups, which promise users privacy and security, can still make mistakes, and that protecting users information remains extremely important.
  3. The last, and some might argue, most important point is that the acquisition of CyberSource could be used to help fend off future potential competition from the increasingly influential mobile-powerhouse Apple. Recent news that the iPhone giant has applied for patents for near-field communication (NFC) chips for future models of the iPhone brings with it the prospect that Apple is about to change the landscape for another industry — banking. A recent American Banker article suggested that Apple could eventually forgo the need of banks all together and route users payments through its iTunes payment system. With the addition of NFC, iPhones could become mobile wallets, store payment card accounts and function as contactless credit or debit cards, which could be trouble for traditional banks and credit card companies. Apple already has agreements with companies such as Starbucks, where customers can order from and use their iPhones to pay (although the payment is linked to a prepaid card). Still, the options are increasingly endless.

The industry is still a few years away from mobile payments going truly mainstream, but there is certainly plenty of steam pushing this new technology forward. The U.N. estimated that 5 billion people worldwide will use cell phones this year. As smartphones become more popular and less costly, their adoption rate is set to rise as well, allowing for increased availability of mobile and e-payment options. There is no doubt payment technology will continue to grow in popularity — the question is: who will be the one to start the revolution?

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Mobile Advertising Innovation and M&A To Pick Up In 2010

January 13, 2010
Geo-location, mobile video could spur new M&A

Mobile advertising M&A has already made news in 2010 with Apple’s announced plans to acquire Quattro Wireless for $275 million and the U.S. FTC’s inquiry into the Google/Admob deal. Expect the sector to continue heating up as new smart phones hit the market and mobile ad spending grows as much as 45% in the U.S. this year, from $2.6 billion in 2009.

In addition to Apple and Google, major movers in 2010 are expected to include Microsoft (past mobile acquisitions include ScreenTonic, Danger and Mobicomp), Yahoo! (previously acquired Actionality), and the recently spun-out AOL (bought Third Screen Media), as well as AT&T, Cisco and Nokia.

Mobile marketing-related deals made up about 13% of all mobile deals Updata tracked in 2009 (see chart below). Research from GigaOM points to potential acquisition targets for 2010 including Millennial Media (which has an 18% market share of total ad revenue generated by the top U.S. mobile ad networks), mobile ad targeting player JumpTap and mobile analytics firm Flurry, which picked up $7 million in VC investments this week from InterWest Partners and other return backers. Most recently, mobile advertising solutions provider Amobee Media Systems (backed by a consortium of investors including Cisco Systems, Accel Partners and Sequoia Capital) announced it plans to acquire RingRing Media, a mobile advertising agency (transaction value was not disclosed).

As new mobile ad technologies and tools develop, investment and M&A will follow. Last week, Google announced its latest endeavor, “pay per call” mobile ads, which allow companies to monetize mobile users who “click” on phone numbers in ads to call the company instead of being directed to their website (Skype launched a similar “click to call” service in October, which it could easily use to monetize mobile communications). Other up-and-coming technologies that bear watching, such as the geo-social networks FourSquare and Gowalla, are catching the eye of local businesses, which have started offering deals and coupons for customers who “check in” with the services. And with more emphasis being put on mobile video (YouTube comes as a standard app on the iPhone) there are even more opportunities for untapped mobile advertising revenues.

As the mobile market undergoes a sea-change from simply making calls to mobile computing, surfing and entertainment, established internet companies of all stripes will be impacted and look to benefit from the innovation. This will drive more M&A interest throughout the year.

Select Mobile Advertising Acquisitions In 2009


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Can Disney/Marvel Deal Spur Better M&A Market?

September 1, 2009

Our Speidy-sense is telling us that Disney’s acquisition of Marvel may be a good sign for the M&A market ahead. Disney announced that it is acquiring the comic book giant in a strategic acquisition — paying $50 a share and valuing the company at approximately $4 billion with a Deal Value/Revenue multiple of 5.9x. At Updata, we have a number of clients with the same mindset — new sell-side clients who are not distressed and looking for a reasonable M&A exit, as well as buyers who are looking to grow strategically through acquisitions of healthy targets at rational values.

Disney’s acquisition of Marvel is the first of a potentially changing M&A landscape — it is relatively large, is not being done for distress purposes and has Disney paying a healthy price (29% premium to public value). Michael Corkery of the WSJ believes that Disney may have broached a psychological barrier in M&A by completing a deal that neither company says it needed to do. According to CEO Robert Iger:

“This was a company that we admired that we saw growing right before our eyes, that we were impressed with. So it was not driven by anything other than continued interest in what Marvel is and what they have done. We don’t have any…problematic strategic holes. We did not have any situation that in any way suggested that this was a must-do deal.”

The end of August also brought another similarly thought out deal with Baker Hughes’ $5.5 billion acquisition of BJ Services. The purchase price represents a 16% premium over Friday’s closing price and both companies explained their rationale behind the transaction was simply that a combination would allow both to better compete in their markets. This new found gall for deal that are simply beneficial for the buyer and seller could serve as kick start for other companies with larger cash reserves and sturdy balance sheets looking to get back in the game, such as Apple and Microsoft, which both have about $25 billion in cash on hand, Cisco, which has about $29 billion, and Google which has nearly $18 billion.

Although two deals does not necessarily mean an M&A boom is on the horizon, if Q2 was any indication, deal volume is starting a rebound. Updata’s database shows software deal volume has generally followed total deal volume for the U.S. for the past few years (with the exception of Q4 2007 and Q1 2009, where software deal volume trended higher). Our data shows that deal volume spiked in Q2 at $25.4 billion and Q3 is already nipping at the heels of Q1’s $6.9 billion and should easily surpass it with September’s help.

We believe there will be increase in M&A activity in the near term due to a number of factors, including:

  • The rebounding equity markets, which are highly correlated with M&A activity levels;
  • An eventual reopening of the IPO market, which will allow companies to deleverage as well as increase working capital reserves, which can potentially be used for acquisitions;
  • Substantial private equity capital available for investment, as many funds have held off on making investments in the past year;
  • Increased reports showing optimism that the economy is finally on the rebound and that the worst of the last year is now in the past.

It is likely, however, that it will take several months before actual announcements are spurred from this recent deal activity. As the markets continue to move past the devastating events of last September, companies will likely begin refocusing their attention back on traditional M&A and less on their own survival. If, as we expect, sellers have “reasonable” expectations and strategic buyers start to step up to the plate, the M&A market will begin to return to more normal levels.

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Using A Cell Phone To Make Calls? That’s So 20th Century.

September 24, 2008
Francesca Bartolomey

Francesca Bartolomey

Remember the days when the primary purpose of a phone was to place calls? In the age of the iPhone, such a notion seems almost quaint. Today’s cell phones are jam-packed with so many features, that the landline phone is quickly becoming obsolete. Mobile applications are exploding in popularity thanks largely to Apple’s iPhone. According to TechCrunch, Apple is on track to reach the 1 billion iPhone applications downloaded mark by the end of the first year of the iPhone App Store’s existence. The iTunes Store didn’t reach that milestone until its second year in operation. Of course, the fact that most iPhone apps are free and most iTunes songs are not, might have something to do with the download rate discrepancy – even so, there are more iPod owners than iPhone owners (Apple sold about 10.6 million iPods in Q2 2008 compared with 1.7 million iPhones). Still, its applications give the iPhone one of its prime differentiators in the smart phone market. Consumers are becoming more and more attached to their mobile devices; phones are now more than an accessory – they’re as vital to the completion of an outfit as shoes are and like shoes, young people want to individualize their phones as much as possible.

Mobile device applications run the gamut from the utterly useless to the completely essential – and everywhere in between: the useful, the fun, the ridiculous, the awesome. While by and large iPhone apps serve to entertain iPhone owners with a short attention span, they’re also a big business. At a New York Tech Meetup earlier this month, we saw a live demo of the iRetroPhone app which turns your iPhone into a rotary phone that you can actually use to make calls. This app reportedly took a day to build and sold a whopping 15,000 copies in the App Store at $2.99 apiece (minus Apple’s 30% cut, that’s $30,000 in net revenue).

But Apple isn’t having all the mobile app fun. Yesterday was the official launch of the HTC Dream by T-Mobile, the first mobile device to run on Google’s Android operating system – the phone is set to be released for sale next month. Google launched an Android application development contest called the Android Developer Challenge. A total of $10 million was awarded to the developer teams that created the best apps. Examples of apps that won the top cash prize ($275,000) were cab4me (which will order a cab to the user’s precise location without having to know the numbers for any cab companies), CompareEverywhere (a comparison shopping application which will scan an item’s barcode and show the user pricing from competitors and product reviews), and Wertago (a social app that shows realtime information on local nightlife). Unlike Apple’s App Store, applications submitted for the Android phones will not be subject to approval before they become available at the store.

The line between cell phones and computers is becoming more blurred with each new development in mobile technology and applications are a critical component of that technology. Expect mobile applications to remain a game-changer in the smart phone market.

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Posted by Signal Hill

Mobile Wars Part I: Symbian And Android Battle For Mobile Device Supremacy

August 5, 2008

Jin Ke

Jin Ke

by Jin Ke

with Don More

Move aside Batman and Ironman. For world domination drama, the real action this summer is off-screen and on our phones, er, mobile devices. Big handset players, notably Research in Motion and Apple, are leveraging dominance in their territories to attack each other’s turf – iPhone’s attempt to dethrone BlackBerry’s enterprise supremacy is the most notable example.

Meanwhile on the OS side, on June 24, 2008 Nokia acquired the remaining 52% of Symbian it didn’t own and opened Symbian’s mobile OS platform to the public to compete with Google’s nascent-but-highly-touted Android mobile OS. Earlier this year, the Finnish company also bought cross-platform solution vendor TrollTech for $153 million, and in December 2007, mobile-PC interoperating player Avvenu.

Google, lacking experience and handsets to push its platform, will be hard-pressed to take major share from the leading global platforms (see chart below) but it will be interesting to see their next move. Given the importance of mobile to Google’s ad-driven growth strategy, plus their cash and pluckiness, they are likely to do something big to follow their acquisitions of mobile social networking players, Jaiku and Zingku, last year.

While hardware device vendors are kings of the mobile value chain jungle because they own the user channel, it is software that will drive future market success. iPhone’s blockbuster sales highlight the importance of software-first (rather than feature-first) mobile devices. RIM has taken note, launching a $150 million fund last May to invest in applications and services for its BlackBerry device and other mobile platforms; it’s called BlackBerry Partners Fund.  Kleiner Perkins similarly launched a $100 million fund in March for iPhone application vendors called iFund.

Given software’s criticality to the mobile device wars, Microsoft is a looming threat, with its ubiquitous enterprise application portfolio and widely installed mobile OS. Showing it means business, in the last 12 months Microsoft spent millions snapping-up mobile technology companies.

Recent Microsoft acquisitions in the mobile space:

Will Google be able to incorporate the mobile space into its search-advertising juggernaut? Will Microsoft be able to take its PC OS and apps success on the road? Who will win the battle for handset supremacy? Whatever the outcome, the mobile slugfest will help drive M&A and IT venture deal volumes in an otherwise slowing year. Stay tuned as the battle heats up after Labor Day.

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Posted by Signal Hill

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